Wednesday, September 29, 2010
Stock Rally Might Be Best Economic Stimulus
Former Federal Reserve Chairman Alan Greenspan announced a plan he think would work to stimulate the economy. A stock rally for Wall Street might be beneficial because in many ways the prices of the stock market represent the national confidence in the economy. If we can increase prices by pumping money into the stock market, consumers would be more into investing, people would become more involved, and it could be a better solution than spending the money elsewhere. They note the "wealth effect" where people spend money on something (i.e. stocks) when they feel as though they are making money on it. The more money they make, the more they will keep investing.
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2 comments:
i don't agree with money tends to follow performance. Granted if a firm is giving more funds it has a higher potential to succeed than a firm with limited capital but the reason we have low retail sales in stocks is because we have low consumer confidence. And it is justified with the mismanagement that we saw during 2008-2009 bubble burst. I agree it a Catch 22 but does Greenspan expect people to make risky investments just because it may help the economy. Firms need to show productivity and the potential for high returns before we throw money at them.
i agree with zuggy that a stock rally may not be the solution for America in the current context. the stock market tends to follow speculation and risky investments is not the appropriate solution for the economic slum. while a stock rally could increase consumer confidence it runs the risk of being purely speculative.
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